Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What's Happening: Shares of enterprise software company MicroStrategy (NASDAQ:MSTR) surged on Wednesday after the company reported a massive increase in quarterly profits, nearly doubling the average analyst estimate. Up nearly 17% in early morning trading, by 12:30 Wednesday afternoon the stock was up about 10.5%.
Why It's Happening: MicroStrategy came up short in terms of revenue, reporting $123.87 million of revenue for the quarter. Revenue was down 10.2% year-over-year, and it was about $11 million shy of analyst estimates. Despite this revenue weakness, profits soared. MicroStrategy reported EPS of $1.79, a huge swing from the same period last year, when the company reported a $0.57-per-share loss. Analysts were expecting EPS of just $0.96.
The main driver of this earnings beat was a 35% year-over-year decrease in operating expenses, which outpaced the 10.2% decline in revenue. This led operating income to soar from a loss of $8.3 million during the first quarter of 2014 to a gain of $22.6 million during the first quarter of 2015. One component of this drop in expenses was $5.4 million of development costs that were capitalized during the quarter.
While an earnings beat being driven by cost cutting amid a revenue decline may not seem like something to celebrate, the market begs to differ.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Apple and MicroStrategy. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.